Pradipta Oli
Least Developed Country (LDC) status is based on criteria such as GNI per capita, Human Assets Index (HAI), and Economic Vulnerability Index (EVI). Nepal is set to graduate in 2026 after exceeding the LDC criteria for both HAI and EVI in consecutive UN reviews (2015, 2018, and 2021).
The National Planning Commission’s 2024 LDC Graduation Smooth Transition Strategy highlights the challenges and opportunities that Nepal will face in this transition.
Impact on Nepal’s International Trade: Navigating Tariff Losses and Trade Preferences
As Nepal nears LDC graduation in 2026, it risks losing preferential trade benefits, which account for a significant portion of its exports. In FY 2022/23, Nepal’s total trade volume was Rs. 1,768 billion, with exports at Rs. 157 billion (9%).
According to the International Trade Centre (ITC), Nepal could face a $59 million loss in exports due to tariff increase post-graduation. Sectors like apparel, carpets, and synthetic textiles are expected to be most affected.
Financial Transition: Impact on Foreign Aid and Concessional Loans
Despite impressive growth in domestic resource mobilization, which reached 27 per cent of GDP, foreign aid remains crucial due to Nepal’s large development needs.
Nepal’s graduation to lower-middle-income status will likely reduce access to concessional loans, increasing borrowing costs. This shift will result in higher interest rates and shorter repayment periods.
Impact on Nepal’s International Support Systems
Nepal’s current contribution to the UN system is capped at 0.010% of the total budget for 2018-2019, with a marginal increase expected after graduation. Travel funding for international meetings, currently prioritized for LDCs, may no longer be automatically available post-graduation.
Nepali students currently benefit from scholarships tied to LDC status, but graduation may reduce these opportunities for higher education abroad.
Impact on Policy Space
Nepal's graduation from LDC status will result in the loss of 25 WTO-specific Special and Differential Treatment provisions, including extended deadlines.
After graduation, Nepal may lose its LDC exemption from agricultural subsidy reduction commitments, facing stricter obligations. This could limit policy flexibility and increase scrutiny of Nepal's Intellectual Property Rights (IPR) and subsidy schemes.
Impact of LDC Graduation on Nepal's Export Sector and Economic Growth
LDC graduation may reduce international support, negatively impacting Nepal's export competitiveness. Studies predict declines in total commodity exports ranging from 2.48% to 4.3% across various reports.
Impact on Employment, Poverty, and Inequality in Nepal
Nepal’s LDC graduation could impact sectors like Pashmina, garments, and carpets. A 4.3% export reduction may lead to 11,395 job losses, affecting 0.161% of total employment.
Women make up 70% of the garment sector workforce, and may disproportionately face job losses, exacerbating gender inequality.
Nepal’s transition from LDC status marks a key milestone in its development but presents significant challenges. A well-structured strategy is essential to mitigate the loss of international support while seizing new opportunities.
